Action for Economic Reforms

Capital Flows

As part of its program on capital control, AER conducts a series of studies on capital flows as well as embarks on various initiatives that generate discussions and analysis, especially the lessons learned from the Asian crisis, towards putting forward concrete proposals and advocacy agenda for bolder capital regulation at the national and international levels.

To complement these activities, this section compiles selected studies, advocacy papers and outputs of seminars, workshops, conferences, and similar forums conducted by or co-sponsored by AER on capital flows.

Initially, it contains the proceedings of and select papers from the international workshop on capital flows with the theme "Arresting Speculation and Volatility" held last February 2001 in Hong Kong. The workshop was a joint project of Asian Regional Exchange for New Alternatives (ARENA) and AER to provide a venue and an opportunity for concerned scholars, as well as activists and civil society organizations, to present, or propose specific and appropriate measures to manage or regulate short-term capital flows.

Exploring the Link between Capital Account Liberalization and Poverty

The severe repercussions of the series of financial crises since the 1997 Asian financial crisis have sparked intense debate on capital flows in emerging market economies leading to numerous studies on the internal and external factors that led to the different crisis episodes as well as the policy responses before, during, and after a crisis. Yet, what remains unexplored is the impact of capital account liberalization on poverty and inequality, particularly the social costs of capital account liberalization even before the crisis strikes (i.e., during normal times).

This paper discusses efforts to reform the world financial system after the East Asian financial crisis. It asserts that post-crisis reforms pushed by the IMF have only led to the reduction of risk and accountability of the private sector (mostly of the North), and pushed the burden of market failure to governments and the public in the South (as illustrated by the debt burden of South Korea, Thailand, and Indonesia). In many cases, IMF programmes transformed the financial crisis into wider economic and social crises.

The Asian financial crisis that exploded in 1997 exposed serious flaws in the marketdominated economic and fiscal policies pursued by governments and international financial institutions (IFIs) in the era of economic liberalization. The massive flight of capital, which deepened the crisis in the affected economies, made it apparent that mechanisms to regulate short-term capital flows were vital if a recurrence of the crisis were to be avoided. This argument is bolstered by the fact that countries such as China and India, who have not opened up their capital accounts, remained relatively insulated from the crisis.

In the wake of the Asian Crisis, a strong consensus has emerged among policymakers, academics, and the media in favor of establishing regional financial arrangements (RFAs) in Asia. This consensus led to the Chiang Mai Initiative, which in 2000 proposed an expansion of existing Association of Southeast Asian Nations (ASEAN) swap arrangements as well as the establishment of bilateral/unilateral swap arrangements among the 10 ASEAN countries with People's Republic of China (PRC), Japan, and Korea (ASEAN+3). This paper reviews existing financial arrangements as well as new initiatives and discusses the rationales behind them.

Regulating Short-Term Capital Flows

This July marks the second year "anniversary" of the Thai baht devaluation - the one that started the Asian currency crisis. In its aftermath, quite a number of realizations are now evident. This paper seeks to present further analyses and lessons as well as pose some policy proposals.
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Restructuring Korean Economy After the IMF Crisis

This paper examines the current state of corporate and financial sector restructuring in Korea, primarily focused on their debt workout programs. The paper raises the following major issues. Since the IMF crisis, foreign capital has been advancing rapidly into the domestic market- into the domestic financial industry, including non-bank sectors such as securities firms. Negative social consequences have surfaced, such as widened income disparities, and also regional disparities. Due to the huge cost of re-structuring, the government's fiscal burden has likewise increased. The economic sovereignty of Korea needs to be rehabilitated, and its social integrity enhanced.